Title: Comparatively Speaking: Patent vs. Trade Secret

In this "Comparatively Speaking," Tony O'Lenick explains the difference between patents and trade secrets, both of which cosmetic chemists will encounter during their careers. This information will assist in determining whether a technology should be patented or maintained as a trade secret.

Patents

Patents are property rights that secure to the inventor, for a limited time, exclusive rights to his or her invention. These rights exclude others from making, using and selling the invention in the United States for the period of the patent. In return, the inventor must disclose how to practice the invention so the at the end of the patent, anyone is free to practice the invention. Patents are rather well-known and understood in the personal care industry.

Trade Secrets

Trade secrets are the type of intellectual property covering secret formulas or processes. These can be regarded as the antithesis of patents in that they are inventions that have no patent protection; rather, the owner of the information has chosen to not disclose the technology publicly and therefore forgoes the protection provided by a patent. Unlike patents that require full disclosure, trade secrets require no disclosure, i.e., they can only be known to a restricted number of individuals in order to be considered valid and they cannot generally be known to those skilled in the art.

Unlike patents, which are based in the federal constitution, trade secrets are protected under laws that are generally controlled by each state and may vary from state to state. In most states, a trade secret may consist of any formula, pattern, physical device, idea, process or compilation of information that both provides the owner of the information with a competitive advantage in the marketplace and is treated in such a way as to reasonably prevent the public or competitors from learning about it, absent improper acquisition or theft.

Trade secrets are not registered with the government; they are simply confidential and last for as long as they are kept confidential. Once a trade secret is made available to the public, trade secret protection ends. Independent discovery, reverse engineering or improper protection will destroy a trade secret's status and allow others to use the information.

Reverse engineering is not considered a violation of trade secret law. This practice is based upon the analysis of a lawfully obtained product in order to defeat a trade secret. In the cosmetic and personal care industry, ingredient labeling requirements allow for the easy reverse engineering of new products and have therefore pushed the industry toward patents.

Examples of potential trade secrets include: a formula for a sports drink; survey methods used by professional pollsters; recipes; a new invention for which a patent application has not yet been filed; marketing strategies; manufacturing techniques and computer algorithms.

An important and unfortunate situation whereby a trade secret may be lost is when another inventor obtains a patent on the same trade secret product or process. And while patents are awarded in order to advance technology, a valid patent can be used to stop a company from practicing that trade secret. Additionally, trade secret status can be lost when the owner fails to take the necessary steps to protect the trade secret. In many respects, the management of trade secrets requires a higher level of sophistication than the management of intellectual property covered by a patent. Trade secrets are more easily lost by mismanagement than inventions covered by patents.

With all the potential to lose a trade secret, why then choose to keep an invention a trade secret rather than to patent it? In theory, trade secrets can last for an indefinite period of time. Therefore, a trade secret is in that regard better than a patent. Another reason is that there are a number of trade secrets that do not rise to the level necessary to obtain a patent. Finally, there are certain limited time frames in which patent protection must be sought, or the right to get a patent will be lost.

The best way to protect trade secrets is through use of nondisclosure agreements. Courts have repeatedly reiterated that the use of nondisclosure agreements is the most important way to maintain the secrecy of confidential information. Or put another way, without nondisclosure agreements, the odds go up that information considered to be extremely valuable to a business will be deemed to have no legal protection.

The formulator will encounter both patents and trade secrets in his or her career and will need to know the difference between the two and respect them both while formulating new products. Additionally, the formulator may well be asked to help determine if some technology should be patented or maintained as a trade secret.